And apparently, intrinsically worthless gifts (e.g. an engagement ring?) are great signals.

THE SETUP:

I will base my analysis on a simple two-players model, which can be extended to create love triangles, quadrangles, etc… We have players A and B, who have concave utility functions, and hence are both risk-averse (i.e. they prefer certainty over an uncertain prospect). People are risk-averse to different degrees, and this will affect the payoffs each player faces, and as a result, the way the game is played. In this game, I will assume that both players are very risk-averse (which is true in most cases). Both players are trying to maximise their payoffs.

Firstly nature chooses whether player A will like player B (we have an information set). The subjective probabilities (something B may believe in) that A likes B and A does not like B are p and (1-p) respectively. This probability will affect the final equilibrium as shown later. Player B really fancies player A, but does not know whether player A will reciprocate. Player B has two strategies: profess and not profess his/her love. Player A’s action is to reciprocate or not reciprocate. However, player A will only reciprocate if nature has made him/her like B and vice versa, i.e. A cannot determine whether he/she will reciprocate. Each player’s payoff will depend on where player B is in the game, and what he/she chooses to do. The potential payoffs are as follows:

1) Player A reciprocates and player B professes: A gets 20 and B gets 20 (both players end up happily together, yay!!!).

2) Player A reciprocates and player B does not profess (sad times hah?): A gets 0 (he/she will never find out that he/she could have been a lot happier, but this can not be treated as a loss either) and B gets -10 for being an idiot (a rational fool) and not professing.

3) Player A does not reciprocate and player B professes (the worst thing ever right?): A gets -10 because suddenly he/she is facing an incredibly awkward situation, which clearly causes a lot of distress (like you need to be nice to that other person, explain why you will not reciprocate blah blah blah), B gets -100 for taking the risk whilst being so risk-averse (in other words for being an irrational fool). This is the most embarrassing scenario for both players.

4) Player A does not reciprocate and player B does not professes (a really boring scenario): A gets 0 again for very similar reasons (the lack of knowledge means he/she will never find out that he/she could have been a lot more stressed), B gets -5 for being a rational fool again (he/she will forever question whether A would have reciprocated).

It is probably easier to see the payoffs if you just draw the normal and extensive forms of the game.

POSSIBLE EQUILIBRIA:

Note that there is no strictly dominant strategy in this version of the game due to player B being very risk-averse.

We now look at best responses. It is pointless trying to look for A’s best responses because whether he/she reciprocates is decided by nature. Thus, we look for B’s best responses:

Best response for B given A reciprocates = profess.

Best response for B given A does not reciprocate = not profess.

Thus, we have two equilibria: (reciprocate, profess) = (20,20), (not reciprocate, not profess) = (0,-5). These are not strictly Nash’s equilibria as A’s action is predetermined by nature. Clearly though, the first equilibrium brings more utility to both players.

THE EASIER SOLUTION (i.e. under perfect information):

If we have a third party to provide (signal) player B information about his/her position in the game, then the game is pretty straight forward. Player B, knowing at which node he/she is, will be able to make the best decision for himself/herself. There will be two Nash equilibria. If player B knows that player A will reciprocate, then he/she will profess, making both players happy. On the other hand, if player B knows for sure that player A will not reciprocate, he/she will not profess and avoid the potential embarrassment. This happens sometimes (as I have seen recently), but most of the time people are in the dark about whether the other person like him/her or not.

THE SOLUTION UNDER IMPERFECT INFORMATION:

There are no mixed strategies in this game as player B can profess only once. However, it is probably possible to have mixed strategies if signalling is introduced. Since B knows nothing about A’s feeling, he/she will have to form expected utility from professing and not professing:

E [U(B)/B professes] = 20p – 100(1-p) = 120p – 100

E [U(B)/B does not profess] = -10p – 5(1-p) = -5p – 5

In order for B to profess, the first equality must be greater than the second. Basic calculations give that p must be greater than 0.76. However, remember what I said in the beginning about p being a subjective value and B being very risk-averse, most people will not say that the probability that someone likes them is that high (unless they have better knowledge after interacting).

SIGNALLING?

Signalling in this game can be slightly more complicated as after player B sends a signal, player A will likely send a signal back, and both players will have to form beliefs functions. Sending a signal can incur costs (say buying flowers and presents or trying to look more physically attractive) or no costs (just showing affection). The signal also may or may not increase the probability that player A will reciprocate player B’s feeling. This is probably too difficult for me to analyse right now, so I will leave this for another note in the near (indefinite) future.

MORE PLAYERS?

We have never done anything like this in the lectures, and my brain is melting… so I will go and write a blues on my piano! But I hope that everyone has seen that love is a really complicated game because people are just rational fools!

Photo by Bayat on Flickr

Two odd pieces of economic research have been highlighted in the Ig Nobel Prizes, awarded each year by the magazine the Annals of Improbable Research.

The first study examined tips given to lap dancers. Unfamiliar with lap-dancing, Geoffrey Miller and colleagues read up on the relevant sociological and feminist literature before getting eighteen dancers to record their earnings for two months. They found that earnings were greater when the dancers were ovulating: the male patrons expressed a preference for dancers who were currently fertile, even if not consciously aware of the difference.

The other study was by behavioural economist Dan Ariely and colleagues, who found that the placebo effect of a pill was weakened when the pills were discounted in price. In other words, some medicines are more powerful in virtue of being more expensive.

The full references are Geoffrey Miller, Joshua M. Tybur, Brent D. Jordan (2007) “Ovulatory Cycle Effects on Tip Earnings by Lap Dancers: Economic Evidence for Human Estrus?” Evolution and Human Behavior, vol. 28, 2007, pp. 375-81; and Rebecca L. Waber, Baba Shiv, Ziv Carmon, Dan Ariely (2008) “Commercial Features of Placebo and Therapeutic Efficacy” Journal of the American Medical Association, March 5, 2008; 299: 1016-1017.

The publication of The New Palgrave Dictionary of Economics compiles contributions from not only 1500 economists but also other fields, a Swedish zoologist for example, supporting the end of ‘dismal’ economics.

Read more: Matthew Reisz (2008) Figure It Out Times Higher Education

That was the central message of Professor Paul Seabright when he delivered the 2005 Royal Economic Society Public Lecture on Thursday 8 December in Edinburgh and again on Friday 9 December in London.

Professor Seabrights lecture took his audience through a tour of the many ingenious strategies that males and females have used to manipulate their partners and rivals, from primates to prehistoric humans to modern men and women. He concludes:

Cooperative man was the key to our civilisation but he has used his success to isolate, confine and control the women in his life.

Throughout the animal kingdom, relations between the sexes involve a fascinating mix of conflict and cooperation, and human beings are no exception. In nature, the females of each species control scarce biological resources for access to which males have to compete. Why then have men controlled more economic resources than women, in almost all societies and at almost all periods of history?

Females are defined in nature as the sex whose eggs are scarce relative to the abundant sperm of males. The result is intense competition among males for access to these scarce reproductive opportunities. In response, males of many species including our own have evolved to be, on average, more competitive, more violent and more inclined to take risks than females.

Sometimes this competition is purely among males they compete to be first in the queue to mate with females, who have little choice in the matter. Sometimes the competition is to impress, persuade and charm females, who have a good deal of freedom in choosing among rival suitors.

The lecture looked at evidence suggesting that until quite recently in our evolutionary history, human females had a lot of choice over their mates, and comparative freedom in their social and personal lives. That choice has been progressively eroded since we stopped being hunter-gatherers and settled down to farming. Women have been confined and controlled, though to very different degrees in different societies.

Why? The answer, paradoxically, lies in the very capacities that have made for human beings extraordinary economic, social and military success in the modern world our ability to cooperate.

Cooperation on a large scale has been honed by our activities of hunting and making war. These are overwhelmingly masculine activities and the skills that men have developed in these domains has been turned against women, the development of whose coalition-building skills have been much more constrained by the biological and social circumstances in which we evolved.

So what should be womens response? Professor Seabright comments:

Women too need to refine and apply their coalition-building skills. The changing nature of modern industrial production is also raising womens bargaining power the information economy needs women who cooperate with men out of motivation rather than compulsion.

Learning from our biological evolution is the best way to move towards more humane and cooperative relations between the sexes in the 21st century.

For further information: contact Romesh Vaitilingam, RES Media Consultant, on 07768-661095 (romesh@compuserve.com)

The 2005 Royal Economic Society (RES) Public Lecture, The Biology and Economics of the Sex War by Professor Paul Seabright, was delivered at the Royal Society of Edinburgh at 3.30pm on Thursday 8 December and at the Royal Institution in London at 3.30pm on Friday 9 December.

Paul Seabright is Professor of Economics at the University of Toulouse. Before that, he taught at the Universities of Oxford and Cambridge. His book The Company of Strangers: a Natural History of Economic Life, which was on the shortlist for the 2005 British Academy Prize.

Find more papers by Paul Seabright at the EconPapers. Intute: Social Sciences also links to more resources on the issues of gender in economics and Women and Economics.

Michael Noer in Forbes magazine shows wittily that the economic perspective on marriage is bleakly unromantic, but admits the point of the research is not to illuminate romantic feelings (for which we already have a culture’s worth of art and poetry) but to answer a specific question, namely, “Why do prostitutes earn so much money?” Is it compensation for the violence and disease which they are exposed to, or compensation for the fact that no-one wants to marry a prostitute?

Found via the book Economics Uncut: A Complete Guide to Life, Death and Misadventure, edited by Simon Bowmaker, which has many examples of economic research into topics like drugs, crime, abortion and gambling and includes Edlund and Korn’s original paper.

He and his colleagues apply economic analysis to personal ads and to survey data. In “The Surrender Calue of Capital Assets: The Economics of Strategic Virginity Loss” he looks at the extent to which people lose their virginity because of being in love. He finds a reliable difference between male and female attitudes, with males more likely to pursue sex for its own sake and females more likely to use virginity “strategically” as a way to get romance.

It may be a common generalisation, but research like this can examine to what extent it is true, and how attitudes to virginity loss are affected by religion, age and the way in which subjects learned about sex.

Read More: (You may have to have university internet access to read these research papers)
“Surrender Value of Capital Assets: The Economics of Strategic Virginity Loss” Journal of Bioeconomics, v2 n3, October, 2000
“Gender Differences in Mate Search Effort: An Exploratory Economic Analysis of Personal Advertisements”, Applied Economics, 1998, 30, (10), 1277-85

Download audio file (paton.mp3)

Providing family planning services for young people has little impact on pregnancy rates and may have contributed to the dramatic increase in rates of sexually transmitted infections (STIs) among young people. That is the conclusion of research presented at the Royal Economic Society annual conference by Professor David Paton of the Nottingham University Business School.

The research casts further doubt on the wisdom of the Government’s Teenage Pregnancy Strategy, following on from the announcement in February 2002 that the latest figures show an increase in teenage pregnancy rates, following several years of decline.

Since the start of the Teenage Pregnancy Strategy in 1999, there has been a major expansion of family planning services in the community aimed specifically at young people. Although teenage pregnancy rates in England have decreased somewhat since 1999, diagnosis rates of sexually transmitted infections have rocketed by 24.3%.

Professor Paton’s research looks at every health authority in England to see whether those areas that have increased family planning services for young people the most have also experienced the biggest decrease in pregnancy rates.

In fact, there is almost no correlation at all, even when a range of other social and economic factors are taken into account. The research also demonstrates that controversial schemes to provide the morning after pill to teenagers free of charge at pharmacists have not reduced teenage conceptions. In contrast, areas with bigger increases in family planning services have experienced significantly bigger increases in sexually transmitted infections among teenagers.

Professor Paton comments:

‘One of the problems with research on sexually transmitted infections is that we only have data on diagnoses and not on actual infections. With some of these infections, most notably chlamydia, there are often no symptoms at all. It could be that the increase in diagnosis rates just reflects the fact more young people are aware about diseases like chlamydia and are getting themselves tested.’

‘In fact, the notable feature about my results is that I found a significantly positive correlation between increases in family planning services and increases both in rates of chlamydia and in rates of those sexually transmitted infections where the symptoms are more noticeable.’

One explanation for these results is that easier access to family planning for young people may have been partly responsible for the increase in risky sexual behaviour among young people. The increase in this risk-taking behaviour may then have outweighed any positive impact of family planning policies.

The research suggests that economic and social factors, such as improved levels of educational achievement, are the factors that are most likely to affect teenage pregnancy rates.

Professor Paton believes that policy-makers can learn important lessons from his research:

When you introduce policies that seem to be obvious, it is important to factor in the possibility that the policies may actually cause people to change how they behave.

In this case, it appears that some measures aimed at reducing teenage pregnancy rates induced changes in teenage behaviour that were large enough not only to negate the intended impact on conceptions, but to have an adverse impact on another important area of sexual health sexually transmitted infections.

Notes

Random Behaviour or Rational Choice? Family Planning, Teenage Pregnancy and STIs by David Paton will be presented at the Royal Economic Society’s 2004 Annual Conference at the University of Wales Swansea on Monday 5 April.

David Paton is Professor in Industrial Economics at Nottingham University Business School.

STI rates are diagnoses among all teenagers at GUM clinics in England per 10,000 young people aged 15-19.

The latest data for teenage pregnancy relate to 2002 and were released in Health Statistics Quarterly on 26 February 2002. The rate of conceptions to girls under 18 was 42.6 per 1,000 in 2002, compared to 42.3% in 2001.

For Further information contact Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).

Related information

You can find other publications by this author, related research and citations from IDEAS and you can search for more Internet resources on the topic of STIs on SOSIG.

Economics in Action is a collaboration between the Royal Economic Society, the Economics Network of the Higher Education Academy and SOSIG, the Social Science Information Gateway. It forms part of the Why Study Economics initiative.